Why You Should Not File for Bankruptcy

Why You Should Not File for Bankruptcy

In some circumstances, filing for bankruptcy is the only solution to deal with your financial crisis. For others though, bankruptcy is actually a bad idea and should be avoided.

Each situation will be different, depending on how much debt you have and what kind of debt it is. It’s essential that you seriously think about the benefits and downfalls of bankruptcy, and see if it is the best solution for your current situation.

Unsecured debt is commonly known as past due to credit cards. It’s debt that has no outstanding collateral for the credit card company to seize from you. That means the lender lets you spend as much as you want without tendering any security in case you default on the loan. If you do default on your payments, there is nothing for the lender to repossess. While they certainly can sue you, that again only gets them a judgment. Eventually, that judgment will likely lead to garnishment of your banking accounts and a paycheck.

This isn’t to say that you can stop paying small loans and you’ll be fine. There are still issues involving your credit and the chance of the lender suing you in court. However, this is not a good reason to claim bankruptcy. In many cases, you or your bankruptcy lawyer can negotiate with the lender to set up a payment plan that works for you, or to pay a lump sum to clear up the debt.

There are also occasions in which the lender may write off your debt as uncollectable, but that isn’t a solution to rely on.

Student Loans, Income Tax, Court Judgment, or Child Support

Bankruptcy doesn’t necessarily erase all of your loans. In some cases, bankruptcy won’t help you with certain loans. Depending on what you owe, each situation is treated individually.

Filing for bankruptcy for debt like student loans, income taxes owed, certain court fines or penalties and child support won’t do you any good. There may be extreme cases when bankruptcy can quash this kind of debt. For the most part, though, bankruptcy can’t do anything about these types of debt.

Stop Collection Agencies from Calling

If you are wary of collection agencies calling you all the time, there’s an easier way to make them stop than filing for bankruptcy. Through the Fair Debt Collection Practices Act (FDCPA), if you request them to stop calling, they must oblige under federal law.

Send a written letter to the collection agency stating you do not want them to contact you anymore. If they continue to call after your request, keep a record of the phone calls, you can sue the collections agency later and potentially collect damages and fees.

Want to Restart

If you’re looking at bankruptcy as an easy way out of your debt, you may want to reconsider that mindset. For starters, there will be certain debts as we mentioned that will never go away after filing for bankruptcy.

Filing for bankruptcy is also hard on your credit. Bankruptcy remains on your credit record for up to ten years. That means if you want to take out a loan for a new vehicle or a mortgage, you may have a hard time being approved for many years to come.